Ahold says latest woes won't affect credit line

May 28, 2003|By From Tribune news services.

AMSTERDAM — Royal Ahold NV said Tuesday that it expects creditor banks to continue to offer a $3.7 billion credit line even after Ahold detected $29 million in accounting irregularities at a second U.S. business.

Monday, Ahold said it was adding $29 million to its estimate for overstated pretax profit in the last three years, bringing the total to $909 million. The company found fraud at Tops Markets, the first discovery of accounting irregularities at its U.S. retail unit. The problems may extend to other units at its retail division, Ahold said.

People found responsible will "face the consequences," said Henk ten Brinke, head of investor relations. "We will not tolerate fraud."

Ahold, which has about $14.3 billion of debt, aims to sell units around the world and reverse a series of acquisitions that cost more than $19 billion after first saying in February that profit in the U.S. was inflated.

"Based on our current cash-flow forecasts, we expect that we will have adequate access to liquidity for the remainder of the year," said Ahold Treasurer Kimberly Ross.

The "intentional accounting irregularities" at Tops relate to the use of promotional allowances, Ahold said. Promotional allowances also led to the overstatement of profit at the U.S. Foodservice food distribution unit. Ahold disclosed the overstatement of earnings at U.S. Foodservice in February.

Under a promotional allowance program, companies pay rebates to wholesalers and retailers to promote their products. The payments reduce the recipients' cost of goods, increasing their profits while not affecting sales.

Once unearthed, accounting problems at companies almost always turn out to be more widespread than initially thought, since those responsible for the fraud often meddle with different figures to prevent any one number in the books from arousing suspicion, said Michael Young, a lawyer with Willkie Farr & Gallagher.

"Accounting irregularities tend to spread like a virus through a company's financial reporting system," said Young.